Oil and gas companies face a mixed Q1 FY27 earnings season as high crude prices benefit upstream producers but pressure oil marketing companies. While ONGC and Oil India expect profit growth from higher realizations, OMCs are dealing with significant LPG under-recoveries. Meanwhile, aviation firms like IndiGo struggle with rising fuel costs and currency volatility.
The first quarter of FY27 presents a varied financial landscape for the Indian energy sector, shaped primarily by volatile crude oil prices and global geopolitical tensions in West Asia. While the impact of these factors differs across the value chain, a clear divergence has emerged between upstream producers and downstream marketing companies.
Upstream Producers Benefit from Higher Crude Prices
Upstream companies like ONGC and Oil India are expected to show resilience this quarter. The increase in global Brent crude prices directly benefits these firms, as they sell crude at higher market-linked rates. Projections suggest a significant quarter-on-quarter rise in realisations for both companies, with estimates pointing toward a 31% increase for ONGC and 30% for Oil India. While production levels remain a key monitorable—with ONGC potentially seeing a slight dip and Oil India showing modest output growth—the higher selling prices are expected to support stronger earnings and improved profit margins compared to the previous period.
Downstream and Marketing Companies Face Margin Pressure
In contrast, oil marketing companies (OMCs) are navigating a period of financial strain. The primary challenge stems from the rising cost of LPG, which has led to increased under-recoveries, or the difference between the cost of providing fuel and the price at which it is sold to consumers. Market estimates indicate that the under-recovery per LPG cylinder could rise to approximately ₹300, up from an average of ₹190 in the prior quarter. This is compounded by the high cost of propane, contributing to total estimated LPG under-recoveries of around ₹200 billion for the sector this quarter. Beyond marketing, city gas distributors (CGD) like IGL and MGL are also feeling the heat as high input gas costs squeeze their margins, even as they see steady volume growth in their operations. One exception in the CGD space is Gujarat Energy Limited, which is anticipated to report growth in profit and operating margins due to higher industrial gas prices.
Aviation Sector Costs Remain High
For the aviation sector, particularly InterGlobe Aviation (IndiGo), the environment remains difficult due to sustained high costs of Aviation Turbine Fuel (ATF). Although fuel prices have seen sequential stability, they remain significantly higher on a year-on-year basis, weighing heavily on operational profitability. Compounding this, the company faces pressure from currency volatility, given that a large portion of its expenses—including fuel, aircraft leases, and maintenance—is denominated in US dollars. While domestic demand has shown signs of recovery following a sluggish April, the overall margin profile for the quarter will likely remain under pressure as the airline manages these persistent cost headwinds.